Patents and Innovation Economics

CLS Bank v. Alice Corp was an en banc decision that attempted to set the record straight on 35 USC 101. IT FAILED. The patents in suit deal with settlement risk in financial transactions. The holding can be boiled down to we don’t like patents on software or on financial transactions and we really don’t like patents that cover both.

Is 35 USC 101 Judge by the Claims?

As I tortured myself reading this decision I wondered if 35 USC 101 is really a question about the claims or about the specification? 35 USC 101 states:

Whoever invents or discovers any new and useful process, machine, manufacture, or composition of matter, or any new and useful improvement thereof, may obtain a patent therefor, subject to the conditions and requirements of this title.

This section does not say anything about the claims and while the claims define the invention they are not the invention. To suggest otherwise is to confuse reality and elevate the draftsman’s art above the inventor’s work. Now you might argue that even if this is true, what is important is whether the claims are directed to statutory subject matter, not whether the specification or the inventor’s actual creation is directed to statutory subject matter. I disagree. If the specification describes patent eligible subject matter and the claims do not, then the claims fail under 35 USC 112(b), not under 35 USC 101.

The CAFC and the Supreme Court are being contradictory when they state that the manner or cleverness of drafting the claims cannot overcome a 35 USC 101 issue and then examine those claims to make a 35 USC 101 determination. They should be looking at the specification to determine whether 35 USC 101 is being met and even then the answer should be that the inventor failed to describe something that meets the requirements of 35 USC 101. If the court determines that the specification meets 35 USC 101 but the claims are not directed to statutory subject matter, then the answer is that the claims fail under 35 USC 112(b). In other words the claims are not supported by the specification.

An example will help clarify this matter. Assume you invent the first LASER. Your patent attorney correctly describes how to make and operate the LASER, but his claims state, “I claim a painting of a woman with an enigmatic smile.” Clearly, the claim is not directed to statutory subject matter, but a 35 USC 101 rejection is inappropriate, because the invention is a LASER. The correct determination is that under 35 USC 112(b) the inventor failed to draft claims to the invention and his claims do not have support in the specification.

If we treated patents as property rights, which they are, we would be wary of invalidating a patent because the patent attorney and the patent office made an error in draftsmanship. But everyone knows that the real answer is that the Supreme Court judges are anti-patents and are just making up excuses to arbitrarily invalidate patents. The Supremes do not understand property rights and their decisions are not based on logic and reason as applied to the law and facts of the case. What matters to the Supremes is getting the outcomes they believe are right in spite of logic, reason, the law or facts.

Nation of Men

The opinion states “Next, the cases repeatedly caution against overly formalistic approaches to subject-matter eligibility that invite manipulation by patent applicants.” P 16.

This is the bastion of lazy thinking. Imagine a physics professor who cautioned against overly formalistic thinking to physics problems. Is too F=ma formalistic?

“Bright-line rules may be simple to apply, but they are often impractical and counterproductive when applied to § 101.” P 17.

Sure the law is special and clear rules in law are counterproductive. Whether your invention is patent eligible does not depend on logic and reason, it depends on which examiner, or group of judges you get. This is the epitome of a NATION OF (arrogant) MEN, not a NATION OF LAWS. John Adams must be rolling over in his grave.

Crazy Quotes from the Opinion

“Short and unadorned, § 101 appears deceptively simple on its face, yet its proper application to computer-implemented inventions and in various other fields of technology has long vexed this and other courts.” P. 7

This is because the judges do not understand what a computer is.

Supposed Test of Majority

“We must first ask whether the claimed invention is a process, machine, manufacture, or composition of matter. If not, the claim is ineligible under § 101. If the invention falls within one of the statutory categories, we must then determine whether any of the three judicial exceptions nonetheless bars such a claim—is the claim drawn to a patent ineligible law of nature, natural phenomenon, or abstract idea? If so, the claim is not patent eligible. Only claims that pass both inquiries satisfy § 101.” pp 9 &10

Note that laws of nature are not a “process, machine, manufacture, or composition of matter.” Natural phenomena are not a “process, machine, manufacture, or composition of matter.” And an abstract idea is not a “process, machine, manufacture, or composition of matter” or it would not be abstract. The so called judicial exceptions are nonsense and are the result of judge who do not understand engineering and science and have failed to think logically about the statute. Instead they decided to ignore the statute, logic, and reason and just work with words they were more comfortable with.

What about the Constitutional

Not once in this opinion does the court talk about the requirement that Congress secure the RIGHTS of inventors to their inventions. It is amazing how they can dance around the statute, insert new requirements beyond the statute to invalidate patents but never discuss the Constitution. There is no threshold level of invention in the Constitution and if 35 USC 101 is narrower than what inventions are then it is un-Constitution and should be changed.

The nonsense argument that the preample limits patent rights also does not fly. The preamble is explanatory not limiting this is true throughout the law. In addition, a preamble is an explanation of the likely effect but not a condition precedent for the law. Let me give an example from real life. “To be happy you should be honest.” Does this mean that if you are not happy, you should not be honest? Does it mean that you should only be honest if in this case it will make you happy? No. It means that your happiness will be promoted by honesty.

“First and foremost is an abiding concern that patents should not be allowed to preempt the fundamental tools of discovery—those must remain “free to all . . . and reserved exclusively to none.” Funk Bros. Seed Co. v. Kalo Inoculant Co., 333 U.S. 127, 130 (1948).” P 15.

Note the hidden assumption that patent stifle future invention and research, but there is absolutely no evidence for this assumption and it is not part of the Constitution or the law.

The opinion calls patents monopolies in several places in contradiction to the Constitution, the statute, and reality.

“It is difficult to see how giving a particular man-made drug to a patient or drawing and testing blood could be considered purely abstract or preordained. Yet the Court held that those steps failed to render the claims patent eligible.” P 21

The court is trying to make sense of the irrational opinions of the Supreme Court.

“Analyzing patent eligibility, in contrast, considers whether steps combined with a natural law or abstract idea are so insignificant, conventional, or routine as to yield a claim that effectively covers the natural law or abstract idea itself.” P 22

Further attempting to make sense of the irrational.

“The concept of reducing settlement risk by facilitating a trade through third-party intermediation is an abstract idea because it is a “disembodied” concept.” P. 26

You can only reach this conclusion by ignoring the specification and claims.

“The requirement for computer implementation could scarcely be introduced with less specificity; the claim lacks any express language to define the computer’s participation.” P. 26

This shows a complete lack of understanding of the technology and also confuses the purpose of the claims (to define) with the purpose of the specification (to explain).

“At its most basic, a computer is just a calculator capable of performing mental steps faster than a human could. Unless the claims require a computer to perform operations that are not merely accelerated calculations, a computer does not itself confer patent eligibility.” P. 27

No at its most basic a computer is an electronic circuit – but don’t expect a bunch of Political Science (that’s an oxymoron) and English majors to know this.

“With the term “shadow record,” the claim uses extravagant language to recite a basic function required of any financial intermediary in an escrow arrangement—tracking each party’s obligations and performance.” P. 27

I think the Judges should be forced to attempt to create a computer system that accomplishes what Alice Corp did and then explain that it’s just an abstract idea.

The CAFC violates the statute by examining each step of the claim individually. 35 USC 103 specifically prohibits this. Every Judge who signed onto this opinion should be impeached (fired) for their inability to read a simple statute.

“In other words, they are merely method claims in the guise of a device and thus do not overcome the Supreme Court’s warning to avoid permitting a “competent draftsman” to endow abstract claims with patent-eligible status.” P 31

Funny that the Supreme Court would complain about competence – Perhaps it is because the SUPREMES are completely incompetent – at least when it comes to patent law.

“before us not the patent eligibility of specific types of computers or computer components, but computers that have routinely been adapted by software consisting of abstract ideas, and claimed as such, to do all sorts of tasks that formerly were performed by humans.” P.37

Luddites of the world unite. A tractor is just performing tasks that were performed by humans, a steam engine is just transporting things that were transporting thing that were transported by humans. Time to close the Patent Office.

“Not only has the world of technology changed, but the legal world has changed. The Supreme Court has spoken since Alappat on the question of patent eligibility, and we must take note of that change.” P. 37

In other words don’t bother us with logic. On the one hand computers are just adding machines on the other hand technology has changed – what?

Dissents

“Any claim can be stripped down, simplified, generalized, or paraphrased to remove all of its concrete limitations, until at its core, something that could be characterized as an abstract idea is revealed. Such an approach would “if carried to its extreme, make all inventions unpatentable because all inventions can be reduced to underlying principles of nature which, once known, make their implementation obvious.”

Finally some actual logic and it actually follows the law of not allowing each step to be analyzed in isolation.

“At the outset, a computer-implemented invention is eligible for patenting under Section 101. Computers are “machines.” Machines are expressly eligible subject matter under Section 101. Having said that, however, were it not for software, programmable computers would be useless. A computer without software collects dust, not data. The operation of the software changes the computer, altering its ability to perform one function or another as the software indicates.”

Some actual logic.

“Indeed, in theory, an inventor could claim a machine combination with circuitry, transistors, capacitors, and other tangible electronic components precisely arrayed to accomplish the function of translating Chinese to English. CLS BANK INTERNATIONAL v. ALICE CORPORATION 29 These complex interrelated machine components would squarely fit within the terms of Section 101 and involve nothing theoretical, highly generalized, or otherwise abstract. The fact that innovation has allowed these machines to move from vacuum-tube-filled specialized mechanical behemoths, to generalized machines changed by punch cards, to electronically programmable machines that can fit in the palm of your hand, does not render them abstract.”

Too bad the Supremes are too incompetent to understand these simple facts.

“The claims do not claim only an abstract concept without limitations that tie it to a practical application. Confirming this, someone can use an escrow arrangement in many other applications, without computer systems, and even with computers but in other ways without infringing the claims.”

“Obviously, the claim does not simply state “use an escrow.”

“And let’s be clear: if all of these claims, including the system claims, are not patent-eligible, this case is the death of hundreds of thousands of patents, including all business method, financial system, and software patents as well as many computer implemented and telecommunications patents.”

“Looking at these hardware and software elements, it is impossible to conclude that this claim is merely an abstract idea.”

Judge Newman’s Dissent

“This section 101 issue appears to have its foundation in a misunderstanding of patent policy, for the debate about patent eligibility under section 101 swirls about concern for the public’s right to study the scientific and technologic knowledge contained in patents. The premise of the debate is incorrect, for patented information is not barred from further study and experimentation in order to understand and build upon the knowledge disclosed in the patent.”

I have seen no competent analysis of how these technologies and industries would be affected by a fundamental reduction in patent-eligibility. Dramatic innovations, and public and economic benefits, have been achieved under the patent law as it has existed.

Patents do not prevent experimentation with patented subject matter, whether the purpose is scientific knowledge or commercial potential. To hold otherwise would be to deny a foundation of the system of patents. However, the popular press has accepted the theory that experimentation is barred for patented subject matter, as have my colleagues, who cite that position as grounds for restricting eligibility under section 101.